Morning Report

23.02.2012

Recession fear returns

Euro zone PMI dips below 50 again in February.

13-Jan 2-Feb 22-Feb

Weak European PMIs and persistent uncertainty regarding the implementation of the Greek bail-out weighs on markets. Global stock markets continued to drop yesterday, and long US and German government bond yields fell. The depreciation of yen continues. USDJPY has now climbed to 80.2, the highest quotation since July 2011. Rising oil prices are also a worry to investors. The price of oil has come up to 123 dollars per barrel, contributing to a broad-based NOK appreciation. EURNOK is currently trading around 7.49. The pound sterling has weakened considerably after the minutes from the monetary policy meeting on 9 February was released yesterday. While the market had expected that the decision to increase the asset purchase programme by 50 bn GBP was unanimous, the minutes revealed that two of the nine members of the committee wanted the programme to be increased by 75 billions. In the minutes it was pointed out that new information on both the domestic and the international economy in sum had been slightly more positive than expected. The minority, Miles and Posen, stressed that there still is a considerable margin of spare capacity remaining in the economy and the extent of deleveraging is still likely to be required. February euro zone flash PMIs awoke the dormant recession fear among investors. The service sector PMI fell unexpectedly from 50.6 to 49.4. Manufacturing PMI rose by 0.2 points to 49.0 (consensus according to Reuters was 49.5). Headline PMI fell to 49.7, below 50, thereby signalling a fall in production. This supports our view that activity in the euro zone is still declining, after the 0.3 per cent GDP fall from the third to the fourth quarter of 2011. Extensive fiscal tightening, stressed financial markets and declining confidence in businesses and households is the reason for this. Today we get more information regarding the euro zone's dominant economy: the German IFO index. An increase is expected, but it is worth noting that yesterday's PMI figures showed a fall also for Germany. In Greece, a law that would force a potential reluctant minority to participate in the negotiated debt swap arrangement will be adopted tomorrow. According to Finance Minister Venizelos the debt swap offer will be put out on Friday. Investors will have 10 days to decide whether to participate or not, before the swaps will take place from 9 to 12 March. Rating agency Fitch downgraded Greece from CCC to C yesterday, and warned that the debt swap will give the Greek government bonds status as "restricted default", and that the new bonds will be given a new rating. The long-time depressed US housing market may finally have passed the trough. January existing home sales came up to its highest level since May 2010. Number of unsold homes declined to its lowest level since April 2006. December house price growth (FHFA) is released today. Weekly initial claims, which have shown a very positive downward trend recently, are also released today. Yesterday's unemployment figures from Norway and Sweden underlines the strong difference between the two neighbours' economies. In Norway record-high oil investments add valuable demand impulses to large parts of the mainland economy. Consequently, employment increased by 16,000 persons during the period from November to January from the previous three-month period (AugustOctober). The labour force increased equally much, so unemployment kept stable at 3.3 per cent. In Sweden, an economy which relies strongly on manufacturing and exports, employment is falling (-0.5 per cent y/y) and unemployment rising. The non-adjusted unemployment rate rose to 8.0 percent, slightly more than the consensus (7.9 per cent, according to Reuters). The seasonally adjusted unemployment rate rose from 7.5 percent to 7.6 percent. We expect to se a further, significant rise in Swedish unemployment going forward, as growth has slowed down markedly in the autumn. NIER's confidence indicators from the household and business sector are released today. These have shown a marginal increase (from low levels) lately, and this trend is expected to continue in today's releases. kjersti.haugland@dnb.no

SEK & 3m STIBOR 9.0 8.9 8.8 8.7 13-Jan 2-Feb

2.70 2.60 2.50 2.40 2.30 22-Feb

Headquarters 0021 Oslo Stranden 21

+47 03000

Offices Abroad New York London Shanghai Singapore Stockholm

+1 212 681 3800 +44 207 6211111 +86 21 6132 2888 +65 6220 6144 +46 8 4734850

Sales Oslo (+47) Equity Fixed Income FX/IR

22 94 89 40 22 01 78 20 22 01 76 50

Regional sales (+47) Bergen Bod Fredrikstad Hamar Haugesund Lillehammer Kristiansand Oslo Stavanger Troms Trondheim Tnsberg lesund

55 21 95 80 75 52 9910 69 39 41 50 62 54 14 82 52 72 09 06 61 24 79 56 38 07 28 62 22 01 76 50 51 84 04 30 77 62 96 80 73 58 74 89 33 01 73 80 70 11 69 85

Research Regional Sales (+47) Eirik Larsen 22 01 76 55

Research FX/IR (+47) ystein Drum Kjersti Haugland Ole Andr Kjennerud Knut A. Magnussen Camilla Viland Kyrre Aamdal

22 01 76 56 22 01 78 03 22 01 78 24 22 01 76 63 22 01 77 41 22 01 76 67

Credit Research (+47) Ole Einar Stokstad Mikael L. Gjerding se Haagensen Rolv Kristian Heitmann Thomas Larsen Knut Olav Rnningen

22 01 78 37 22 01 77 62 22 01 76 93 22 01 76 77 22 01 77 36 22 01 78 15

Yesterday's key economic events (GMT) 08:58 EMU Composite PMI 09:00 Norway LFS Unemployment 15:00 USA Home sales Todays key economic events (GMT) 09:00 Germany IFO, total 13:30 US Initial claims 15:00 US House prices (FHFA)

As of Feb Dec Jan As of Feb Week 7 Dec

Unit Index % mill Unit Index 1000 m/m %

Prior 50.4 3.4 4.4 Prior 108.3 348 1.0

Poll 50.6 3.4 4.7 Poll 108.8 354

Actual 49.7 3.4 4.6 DNB

Morning Report
23.02.2012

SPOT RATES AND FORECASTS

102 100 98 96 94 92 22-Feb

EUR vs GBP & CHF 1.25 1.20 1.15 1.10

0.85 0.84 0.83 0.82 0.81

13-Jan 2-Feb 22-Feb

FX USDJPY EURUSD EURGBP EURCHF EURNOK EURSEK EURDKK USDNOK JPYNOK SEKNOK GBPNOK USDSEK JPYSEK NOKSEK GBPSEK

Prior 80.28 1.325 0.846 1.206 7.489 8.830 7.437 5.655 7.045 0.850 8.856 6.669 8.307 1.180

Last 80.17 1.328 0.846 1.206 7.496 8.842 7.437 5.649 7.046 0.849 8.864 6.663 8.311 1.180 10.452

% -0.1% 0.2% 0.1% 0.0% 0.1% 0.1% 0.0% -0.1% 0.0% 0.0% 0.1% -0.1% 0.0% 0.0% #VALUE!

In 1 m ...3 m 77 77 1.30 1.30 0.83 0.83 1.23 1.23 7.60 7.75 8.90 9.20 7.45 7.45 5.85 5.96 7.59 7.74 0.85 0.84 9.2 9.3 6.85 7.08 5.27 5.45 1.17 1.19 10.72 11.08

...6 m ...12 m 80 85 1.35 1.40 0.85 0.87 1.23 1.30 7.65 7.65 9.00 9.00 7.45 7.45 5.67 5.46 7.08 6.43 0.85 0.85 9.0 8.8 6.67 6.43 5.33 5.46 1.18 1.18 10.59 10.34

FX AUD CAD CHF CZK DKK GBP HKD ISK KWD LTL LVL NZD PLN SGD RUB

USD 1.0663 0.9989 0.9085 18.94 5.6038 1.5692 7.7562 124.62 0.2781 2.6014 0.5265 0.8307 3.1583 1.2581 29.6910

% 0.22% -0.13% -0.25% -0.31% -0.22% 0.15% 0.01% -0.16% -0.01% -0.22% -0.11% 0.21% -0.59% -0.02% -0.02%

EURSEK & OMXS 9.0 8.9 8.8 8.7 13-Jan 2-Feb

550 500 450 400 350 22-Feb

1m 3m 6m 12m 3y 5y 7y 10y

NIB OR Prior 2.25 2.67 3.02 3.24 2.95 3.21 3.44 3.65

SWAP AND MONEYMARKET RATES STIBOR EURIBOR Last Prior Last Prior 2.24 2.06 2.04 0.53 2.67 2.36 2.35 0.95 3.02 2.53 2.52 1.28 3.24 2.63 2.63 1.47 2.95 1.99 1.94 1.28 3.21 2.14 2.14 1.62 3.44 2.35 2.26 1.98 3.64 2.53 2.46 2.33

Last 0.53 0.94 1.27 1.46 1.26 1.62 1.97 2.33

USD LIBOR Prior 0.25 0.49 0.75 0.90 0.71 1.14 1.60 2.08

Last 0.24 0.49 0.75 0.90 0.72 1.18 1.63 2.10

Gov. Bonds, 10y 2.00 1.75 1.50

3.00 2.50 2.00 1.50

13-Jan 2-Feb 22-Feb

10y 10y yield vs bund

NORWAY Prior Last 114.85 111.15 2.40 2.39 0.48 0.49

GOVERNMENT BONDS SWEDEN GERMANY US Prior Last Prior Last Prior 114.663 114.63 100.78 100.88 99.984375 1.92 1.92 1.92 1.90 2.00 0.00 0.01 0.08

Last 99.81 2.03 0.13

JPY and DowJones 81 14 80 13 79 12 78 77 11 76 10 75 13-Jan 2-Feb 22-Feb

In 3m 6m 12m

INTEREST RATE FORECASTS NORWAY SWEDEN GERMANY 3m nibor 10y swap 3m stibor 10y swap 3m euribor 10y swap 2.65 3.50 2.40 2.25 1.05 2.50 2.55 3.75 2.20 2.50 1.05 2.75 2.60 4.25 2.00 3.00 1.05 3.25

US 3m libor 10y swap 0.50 2.25 0.50 2.50 0.50 3.00

USD and gold 1.42 1900 1.38 1800 1.34 1700 1.30 1600 1.26 1500 13-Jan 2-Feb 22-Feb
EURUSD ra. Gold

FRA NOK MAR JUN SEP DEC FRA SEK MAR JUN SEP DEC

3m 2.62 2.48 2.48 2.51 3m 2.27 1.99 1.81 1.75

Prior 2.62 2.50 2.50 2.51 Prior 2.27 2.00 1.82 1.76

chg 0.00 -0.02 -0.02 0.00 chg 0.00 -0.01 -0.01 -0.01

MISCELLANEOUS TWI Today % Stock ex. Today % NOK 93.75 0.10 Dow Jones 12,938.7 -0.2% SEK 116.97 0.15 Nasdaq 2,933.2 -0.5% 104.63 0.08 FTSE100 5,916.6 -0.2% EUR USD 79.07 - 0.21 Eurostoxx50 2,519.0 -0.9% GBP 80.40 Dax 6,843.9 -0.9% Comm. Today Last Nikkei225 9,595.6 0.0% Brent spot 124.6 124.6 Oslo 425.86 0.2% Brent 1m 122.8 122.9 Stockholm 501.96 -1.0% -0.6% Spot gold 0.0 1752.0 Copenhagen 583.13 Sources to all tables and graphics: Reuters and DNB Markets

Morning Report
23.02.2012
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